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The Loonie’s Flirtation with Parity: Prospects and Policy Implications


  • Philippe Bergevin

    (C.D. Howe Institute)

  • Colin Busby

    (C.D. Howe Institute)


With the Canadian dollar near parity with its US counterpart, monetary policymakers may come under pressure to curb future interest rate increases to limit the loonie’s appreciation. When the value of the loonie is in line with economic fundamentals, such actions would necessarily compromise the domestic inflation target. By examining the factors underpinning the Canada/US exchange rate, we conclude that the present trading range for the loonie is supported by fundamentals. The Bank of Canada should therefore continue its policy of benign neglect with regard to the exchange rate.

Suggested Citation

  • Philippe Bergevin & Colin Busby, 2010. "The Loonie’s Flirtation with Parity: Prospects and Policy Implications," e-briefs 101, C.D. Howe Institute.
  • Handle: RePEc:cdh:ebrief:101

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    References listed on IDEAS

    1. Stephen Murchison & Andrew Rennison, 2006. "ToTEM: The Bank of Canada's New Quarterly Projection Model," Technical Reports 97, Bank of Canada.
    2. Gino Cateau & Stephen Murchison, 2010. "Monetary Policy Rules in an Uncertain Environment," Bank of Canada Review, Bank of Canada, vol. 2010(Spring), pages 27-39.
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    More about this item


    Monitary Policy; Bank of Canada; exchange rate;

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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